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CRS: Iran Sanctions

Author: Kenneth Katzman
April 26, 2012


Sanctions have been a major part of the U.S. policy toward Iran since the 1979 Islamic Revolution. This Congressional Research Service report looks at the history and effects of some of the overlapping U.S. and international sanctioning efforts toward Iran's nuclear program.

The objective of sanctions—to compel Iran to verifiably demonstrate that its nuclear program is for purely peaceful uses—may be on its way to achievement but has not been accomplished to date. The international coalition that is imposing progressively strict economic sanctions on Iran has broadened and deepened, producing significant effects on Iran's economy. U.S. officials believe that these sanctions—which are now targeting Iran's oil export lifeline—caused Iran to return to the nuclear bargaining table in April 2012 with greater seriousness and intent toward peaceful resolution. Many judge that Iran needs an easing of sanctions because the energy sector provides nearly 70% of Iran's government revenues. Iran's worsening economic situation is caused by:

  • A decision by the European Union on January 23, 2012, to wind down purchases of Iranian crude oil by July 1, 2012. EU countries buy about 20% of Iran's oil exports. This action took into consideration an International Atomic Energy Agency (IAEA) report on Iran's possible efforts to design a nuclear explosive device, and diplomatic and financial rifts with Britain, which caused the storming of the British Embassy in Tehran on November 30, 2011.
  • Decisions by other Iranian oil purchasers, particularly Japan, to reduce purchases of Iranian oil. Those decisions are intended to comply with a provision of the FY2012 National Defense Authorization Act (P.L. 112-81, signed December 31, 2011) that prevents the opening of U.S. accounts by foreign banks that conduct transactions with Iran's Central Bank—unless the parent country reduces substantially its purchases of Iranian oil.
  • The willingness of other oil producers with spare capacity, particularly Saudi Arabia, a strategic rival, to sell additional oil to countries cutting Iranian oil buys.
  • Industry sources said in late March 2012 that Iran's oil sales for March have fallen dramatically from prior levels. Once the EU embargo is fully implemented, Iran's oil sales might fall by as much as 40% (1 million barrels per day reduction out of 2.5 million barrels per day of sales). Iran is widely assessed as unable to economically sustain that level of lost oil sales.

The signs of economic pressure on Iran are multiplying. The value of Iran's rial has dropped precipitously since September 2011. Iran is virtually cut off from the international banking system and is increasingly trading through barter arrangements rather than hard currency exchange. The pullout from Iran by major international firms has slowed Iran's efforts to modernize its energy sector and other sectors, rendering Iran unable to increase its oil production above 4.1 million barrels per day. Still, Iran has small amounts of natural gas exports; it had none at all before Iran opened its fields to foreign investment in 1996. Still, relatively high world oil prices have reduced some of the effects of the sanctions.Despite the imposition of what many now consider to be "crippling" sanctions, some in Congress believe that economic and diplomatic pressure on Iran needs to increase further and faster.

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